States often require extensive notice before a lien may be perfected. These notices serve a dual purpose: on one hand, they provide a property owner ample awareness that the title to their property could be in danger. On the other hand, the claimant has several opportunities to encourage the owner to make payment before actually having to file a mechanics lien.
While pre-lien communications have their benefits, they also have drawbacks. Claimants often face a litany of deadlines and form requirements, and owners might feel threatened throughout the process. That’s exactly what happened in a recent Minnesota case- while a lien claimant navigated the notice requirements for establishing a lien, the property owner felt harassed. Ultimately, the court found that following procedure to file Minnesota mechanics liens does not make a claimant immune from regulations regarding debt collection.
Minnesota Mechanics Liens and the FDCPA
The case at hand is Randall v. Paul, and the full text can be found here.
Before diving too deep, let’s establish what the FDCPA is. The Fair Debt Collection Practices Act (“FDCPA”) is federal legislation limiting the actions of debt collectors. The law was passed in order to protect consumers from harsh debt collection practices and limits the communication between a debt collector and a debtor. If a debt collector is in violation of the FDCPA, he or she may be liable for damages or other penalties.
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The Facts
Northstar, a contractor, initiated the process of filing a Minnesota mechanics lien against Randall, a property owner. In order to preserve his lien under Minnesota law, the contractor recorded a statement of lien with the county and sent a copy of the lien statement to the property owner. A few days later, after realizing that the original filed document did not contain a proper property description, Northstar’s general counsel filed and mailed another copy of the lien statement with the proper documentation of the property. Along with this second mailing, Northstar attached a letter explaining the error and the need for the second mailing of the lien statement. Over a year later, the property owner filed suit against the contractor for violating the FDCPA.
The District Court
Specifically, the property owner claimed that the contractor failed to issue what they referred to as a “mini-Miranda” warning. If you’ve ever watched Law and Order (we both know you have), you’ve heard a Miranda warning- “You have the right to remain silent…” In this case, a mini-Miranda warning refers to the contractor’s responsibility to notify the property owner that he is attempting to collect a debt and that any response by the owner could be used in order to collect the debt. Because this warning was not given, along with other required debt verification documents and information on how to resolve the dispute, the owner claimed that the contractor was in violation of the FDCPA.
Filing a motion for summary judgment, the contractor argued that this was no debt collection action and that he was merely following the procedure required for Minnesota mechanics liens. As such, he claimed, the FDCPA did not apply. The district court agreed with the contractor, stating that the communications between contractor and owner did not trigger the protections afforded by the FDCPA. The owner appealed.
The Appeal
The primary issue on appeal was whether the lien statements required by Minnesota law qualified as “debt collection communications.” The contractor again argued that he was merely taking the necessary steps to enforce his lien rights. He added that there were no threats or demands in the letters sent to the property owner and that the letters were not otherwise actively seeking out payment. Unfortunately, the appellate court did not find this argument very compelling. The court found in favor of the property owner.
The court stated that the contractor’s defense of merely following the procedure required to enforce lien rights did not preclude him from also being in violation of the FDCPA. In the court’s words, “the FDCPA and the Minnesota mechanic’s lien statute are not mutually exclusive…” The court also found that the practices used by the contractor, though in line with the process for enforcing Minnesota mechanics liens, quite possibly qualified as prohibited “communications” under the FDCPA. Specifically, the court found that language such as “due and owing” in connection with the debt could be construed as an effort to collect, giving the communication an “animated purpose” which falls under the FDCPA.
Quick Note: When a court reviews a case under a motion for summary judgment, the court will give the opposing party the benefit of the doubt and will review all facts in the light most favorable to the non-moving party. Unless there is no genuine issue of material fact between the parties, the attempt to end the case with a motion for summary judgment will not prevail. In this case, the court merely needed to find that a genuine issue of material fact existed between the parties in order to find for the property owner and keep the case alive.
Takeaway
This loss has to sting for the contractor. Strict adherence to procedural rules is mandatory when asserting lien rights, and this case showed that sometimes it still may not be enough. However, it’s important to note that the appellate court was merely ruling on a motion for summary judgment, and the contractor still has ample opportunity to argue the remainder of the case. The contractor could very likely still prevail. But the reminder that lien laws, which are already some of the most burdensome in the nation, may also run afoul of the FDCPA is a tough pill to swallow. Considering that Minnesota didn’t even crack our list of the top 8 toughest lien notice laws, applying the FDCPA to the lien laws of any state will create some headaches.
For more on Minnesota mechanics liens, check out our Minnesota Construction Payment Resources. Not doing business in Minnesota? We’ve got you covered.
